DCF Studio

    PEG · NYQ · Utilities

    Public Service Enterprise Group Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 42.84

    Market price

    USD 69.77

    Implied upside

    -38.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 29.7% of revenue against depreciation of 12.6%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 42.84-38.6%
    Exit multiple
    USD 86.73+24.3%
    Market price
    USD 69.77

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 13.1bnUSD 14.1bnUSD 15.1bnUSD 16.2bnUSD 17.5bn+7.5%
    EBITUSD 3.1bnUSD 3.3bnUSD 3.6bnUSD 3.9bnUSD 4.2bn+7.5%
    NOPATUSD 2.8bnUSD 3.0bnUSD 3.2bnUSD 3.4bnUSD 3.7bn+7.5%
    Add depreciation & amortisationUSD 1.6bnUSD 1.8bnUSD 1.9bnUSD 2.0bnUSD 2.2bn+7.5%
    Less capital expenditureUSD -3.9bnUSD -4.2bnUSD -4.5bnUSD -4.8bnUSD -5.2bn+7.5%
    Less increase in working capitalUSD 580.6mUSD 624.0mUSD 670.7mUSD 720.9mUSD 774.8m-7.5%
    Free cashflow to firmUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.5bn+7.5%
    Discount factor0.96690.90390.84500.79000.7385-
    Present valueUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bn+0.5%
    Present Value Of The ForecastUSD 5.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.678Reported 0.519, pulled toward 1.0 (Blume)
    Cost of equity8.73%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 34.8bn59.0% of capital
    Total debtUSD 24.2bn41.0% of capital, book value as a proxy
    Tax rate11.1%Effective, capped at statutory
    WACC6.97%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 42.84

    88% of EV

    Forecast FCFF, final year
    USD 1.5bn
    Capex at depreciation, working capital in reinvestment
    USD 3.7bn
    Less reinvestment at g/ROIC (35.9% of NOPAT)
    USD -1.3bn
    Capitalised
    USD 2.4bn
    ROIC (WACC floor)
    7.0%
    Terminal value, undiscounted
    USD 54.3bn
    Terminal value, discounted
    USD 40.1bn
    Enterprise value
    USD 45.5bn
    Less net debt
    USD 24.1bn
    Equity value
    USD 21.5bn

    Exit at 13.3x EBITDA

    Value per shareUSD 86.73

    92% of EV

    Terminal value, undiscounted
    USD 84.1bn
    Terminal value, discounted
    USD 62.1bn
    Enterprise value
    USD 67.5bn
    Less net debt
    USD 24.1bn
    Equity value
    USD 43.5bn

    Spread between methods: 68%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.97%92.8098.17105.50116.31134.13
    5.97%59.6060.0860.5561.0361.50
    6.97%42.0642.4542.8443.2343.62
    7.97%29.0129.3429.6629.9930.32
    8.97%18.9519.2319.5119.7920.07

    Outlined: this model. Green text: above today's price of 69.77. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year7.5%12.7%+5.2pp
    EBIT margin23.8%29.8%+6.0pp
    Discount rate7.0%5.7%-1.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.